Absolute Software Corp (TSX: ABST) is engaged in the development, marketing, and provision of a cloud-based endpoint visibility and control platform that provides management and security of computing devices.

Key highlights

• Registering sequential growth in operating matrix: Since acquiring NetMotion, the company has made significant progress on product integration milestones, as well as delivering continued innovation to customers and recording some of the strongest growth numbers in several quarters, in terms of annual recurring revenue, adjusted revenue, and adjusted EBITDA. The Company is continuously working closely with customers; thus, its presence is increasing along volume, which is appreciable. 

Source: Company Presentation

• Higher guidance on FY2022: Recently, the management Increased the company’s full year adjusted revenue to be in the range of USD 204.5 million to USD 207.5 million; this equates to a growth of approximately 12% to 13.5%. Furthermore, they also increased an Adjusted EBITDA margin by 100 bsp and expects to be in the range of 19% to 21%.

Source: Company presentation

• Growth strategy: The group argues that the need for security and control of computer devices, software, and data has expanded as a result of increased remote work and distance learning. Since the company does not want to rely entirely on network-based security, it is focusing more on endpoint system security. The company sees an opportunity for further growth across North America and in other global regions in each enterprise, government, and education verticals.

• Dividend distribution: Recently, on November 29, 2021, the company paid a quarterly dividend of CAD 0.08 per share. Furthermore, at the price of CAD 11.48, the stock is generating a yield of 2.787%, which seems pretty good considering the latest macros and interest rates.

Financial overview of Q1 2022 (Expressed in thousands of USD)

Source: Company Filings

• In Q1 2022, the company posted higher revenues at USD 43.7 million, against USD 28.4 million in the previous corresponding period. 76% of the total increase from Q1 F2021 was attributed to NetMotion and 24% was attributed to Absolute’s existing business.
• On the back of higher operating expenses, the company posted an operating loss of USD 4.8 million in Q2 2022, against a profit of USD 4.1 million in the previous corresponding period.
• The company reported a net loss of USD 7.5 million, against a profit of USD 2.6 million in pcp. Higher interest expenses and operating expenses dragged the net income, although it got support from income tax recovery.

Risks associated with investment

The Company is exposed to risks of varying degrees of significance, affecting its ability to achieve its strategic objectives for growth. There is a significant risk of technological changes. Other risks are also there, such as the Company’s business strategy, evolving industry standards, intense competition, Currency fluctuations etc.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company posted strong Q1 2022 numbers, which reflects an increased demand for the Absolute Resilience platform. The group is continuously working closely with customers; thus, its presence increases along volume and registered sequential growth in the operating matrix, which is commendable. We expect that the company’s ARR will continue to provide revenue stability, profitability, and cash flow. Moreover, the management has shared its guidance on FY2022 revenue, which they expect to be in a range of USD 204.5-207.5 million, an increase by 12-13.5% from 2021 achieved numbers, along 100 bsp improvement if adjusted EBITDA, which is a key positive. We also believe, the company is well-positioned to deliver the resiliency, connectivity, and intelligence they need to succeed in this new environment. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 11.48 as on December 8, 2021. We have considered Tecsys Inc, Sylogist Ltd, Allot Ltd. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Analysis Summary

1-Year Price Chart (as on December 08, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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